Real Estate Firms Go Logisitic

Thursday, May 10, 2007 3:21

In the past 2 years, it has been a ride for real estate investors.

for several years, the residential real estate market was on fire, and like buying a tech stock in the late 90s… investors couldn’t find a loser.

Then June 1 of 2005 saw the first series of regulations meant to cool things off… followed by more regulations on June 1, 2006… and every since then, it has been a trend for regulators to release tax regulations to try and curb “hot money”.

Interestingly enough, as we point out in Real Estate Reality… Why Investment is Going Up the regulations were not enough to turn away some, and in fact the regulations have
encouraged others (see Investment in Industrial: Building Boxes for China’s Future).

Match this with a huge need for investment in the real estate sector, and it doesn’t take long to see why both Jones Lange LaSalle and CB Richard Ellis have recently released their first China Logistics reports.

For the Jones Lange LaSalle effort, the industrial team (headed by Trent Iliffe) partnered without friends over at the China Supply Chain council and interviewed 138 companies to develop what is a great overview of current holdings, and a theory on where future holdings will be needed.

Their 20 “hot spots”, broken down by

for the most part, I would agree from an operational perspective. however my list would look a little different

  • 5 existing hubs (Beijing, Guangzhou, Shanghai, Shenzhen, and Tianjin);
  • 5 secondary hubs (Dalian, Suzhou + Jiangjiagang, and Xiamen) + Chengdu, Nanjing, Wuhan, and Xian
  • 10 emerging hubs (Changchun, Chongqing, Harbin, Hangzhou, Shenyang and Zhengzhou) + Ningbo, Qingdao, + Kunming

Why all the changes? Simply, you do not need a hub in Shenyang if Dalian is only 1 hour away.. and with Hangzhou, Nanjing, and Suzhou being so close to each other firms will look to centralize…

Supporting logistics growth are 11 drivers:

  1. Integration with rest of world
  2. Stable and healthy economic growth
  3. Export Growth
  4. Manufacturing Hub of world
  5. Retailer expansion
  6. WTO Commitments
  7. Open sky agreement
  8. Moving up value chain
  9. Inland China
  10. Expanding domestic market
  11. Maintaining cost competitiveness

Again, I agree with all nearly all of these, and many operators that I speak with would place them in much the same order if they were positioned in the freight forwarding or export logistics space. However, trucking operators would change this quite a bit, and this is important as trucking operators are the ones that will need to rent/ buy warehouse space and trucks (freight forwarders are heavily invested in on the coast and rep offices inland, and that is a model that will not change)

Following that, the JLL report provided a good overview of the various modes (road, rail, and air) and then tried to tie that back into their hot spots. On its own, the report provides a nice overview of the various modes, the current situation, but the document did not operationalize the information or tie regional development into the need for hubs to be in place in specific cites.. and how those cities would act as hub and spoke for surrounding cities

CBRE’s report was a solo effort that relied heavily on the China Federation of Logistics and Purchasing and desktop research for its underlying data and analysis (I recognized several of the charts used). The report was more of a Logistics 101 with some regional analysis. what I did like about this report over the JLL report was that they did not try to bit off too much on the regional analysis and focused primarily on the Bohai Rim, Yangtze River Delta, and Pearl Delta areas through general assessments with examples of recent deals per area of active investments (JLL did not provide many examples).

Wrap up
For investors looking at industrial space, it will be critical to understand how goods will physically move through China, and what the drivers will be. Both of these documents will provide readers with a good overview of logistics in China, but neither takes an operational approach or incorporates how regional growth will need to be supported from a logistics perspective.

I am sure that in next year’s edition of both these documents that the houses will seek external operational assessments, and as such they will greatly improve their documents and their overall service platforms.

Moving away from the needs of an export economy to one that harmoniously balances the domestic market will provide opportunities to many, and it will take real estate and operational professionals to come together to be able to not only identify assets, but properly assess and operationalize them.
Until then, here are a few posts we have written on logistics in China:

Regional Economy – The 11th Five-Year Plan: Regional Economies and Regional and City Reports
Trucking –WSJ Long Haul Coverage , Long Haul Trucking in China, and Forbes Review of Logistics in China

Yangtze River – Implications of a Containerized Yangtze River and 6300km of Investment Potential – The Yangtze River

Company Announcements – YRC Has Plans For China, FedEx Goes Next: 19 Cities Guaranteed, DHL:Getting aggressive or HUGE account?, and Zim Logistics is Making Moves

Other – Book Report: The Box

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3 Responses to “Real Estate Firms Go Logisitic”

  1. China Law Blog says:

    May 10th, 2007 at 7:01 pm

    Great post. I’m a linkin’.

  2. rbrubaker says:

    May 14th, 2007 at 11:11 am

    Further to the above, here is more from a REuters Article

  3. All Roads Lead To China » Review of 2nd Tier Activity: May 17 says:

    May 17th, 2007 at 3:45 am

    […] Jones Lange Lasalle’s Chongqing Profile and logistics report – a one two punch of reports that have done a good job of presenting enough information for me to ask for a meeting (their intention I am sure). You can see a more complete review of the logistics report in our post Real Estate Firms Go Logisitic […]

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